The greatest impact of the rise in political violence in the Sahel and West Africa has been on perceptions of doing business in the region rather than on actual trade volumes themselves. Elizabeth Stephens, head of credit and political risk analysis at JLT Specialty, reports.
The seizure in January by heavily-armed Islamic extremists of the In Amenas gas plant in the Saharan desert and the holding of 650 hostages, combined with the escalating war in neighbouring Mali against Islamic insurgents, have highlighted the challenges of protecting assets and personnel for companies trading in the region.
Western governments and investors have begun to worry that the disparate range of conflicts across the Sahel are interlinked and that neighbouring states are vulnerable to infiltration by extremists. Uranium rich Niger, on the frontline with Mali, is beset by criminal gangs and violent extremists. Nigeria has been dealing with its own Islamic terrorist movement, Boko Haram, in the Muslim north, which has killed more than 1,000 people and has perpetrated attacks as far south as Abuja. In turbulent Chad, religious tensions have contributed to repetitive civil wars. In 2011, Sudan split between the Muslim north and Christian south.
African nations tend to desist from attacking each other directly but are far less reticent in allowing their internal conflicts to spread and inflame neighbouring territories. Boko Haram fighters have used Northern Mali as a training ground. Across the Sahara and Sahel, militants from a range of organisations move across national borders from one country to the next with apparent impunity and the groups they have formed exemplify how transnational the world has become.
Present day grievances may have given rise to radical Islamic movements but it is historical trading routes and criminality that has enabled these movements to flourish. Until the military coup in Mali in March 2012, state complicity in organised crime enabled the growth of al-Qaeda in the Islamic Maghreb (AQIM) and was a driver of the conflict in the north.
Contraband trade in licit goods has been conducted across the Sahel and Sahara for decades. Over time, trade expanded to include illicit goods that spawned the organised crime networks of the present day in three areas: cocaine smuggling, smuggling of Moroccan cannabis resin and kidnapping for ransom. Those involved in these activities have converted their wealth into political influence and military power, with Sahel governments using organised crime as a political resource by allowing their allies to benefit from such activities. Mokhtar Belmokhtar, the mastermind behind the gas-plant attack in January is frequently referred to as ‘Mr Marlboro’ because of his lucrative trade in smuggled cigarettes.
The financial success of AQIM’s kidnap for ransom operations is dependent upon lawlessness and government collusion in criminality. In northern Mali, Tuareg leaders acted as intermediaries for AQIM in negotiations for the release of western hostages in return for a share of the ransom payments. It is assumed, although there is no hard evidence, that Malian leaders were complicit in AQIM’s use of the country as a safe haven for kidnap and ransom activities in exchange for financial gain.
It is ironic that Mali, the west’s supposed democratic success story, became the safe haven for Islamic terrorists. Had greater attention been paid to state collusion with organised crime and aid been made dependent on tackling it, AQIM would have been deprived of such a ready foothold in the region. While there is no quick way to break up deeply entrenched criminal organisations, the link between the state and organised crime must be addressed if the process of rebuilding a unified Mali and countering Islamic militants is to succeed.
It was international intervention in Libya, in the form of the NATO bombing campaign, to overthrow Gaddafi that provided the catalyst for events in Mali. Heavily-armed Gaddafi loyalists fled into the desert and joined the Tuareg insurgency in Mali. Africa and the west are now relying on more intervention to stabilise the country. Realistically, the most international forces can do is to keep jihadists on the move and prevent them from establishing their presence in one area. The French intervention is intended to create time for Ecowas and African Union forces to arrive but these troops will confront the same strategic logic and will be more ill-equipped to deal with it. The Nigerian army is rich in men and weaponry but has no experience of fighting in the desert.
The interconnectedness and temporary confluence of interests between separatist movements, jihadists, smugglers, drug traffickers and kidnappers, highlight the complexities of distinguishing between different types of political violence and the threat posed to those operating and investing in the region.
In the past two years the continent has seen almost all types of political violence: from revolution in Egypt, terrorist attacks in Nigeria, to strikes and riots around the mining sector in South Africa, the continuing conflict between the separated regions of the Republic of and Southern Sudan, and the hostage crisis at the In Amenas gas plant in Algeria. Such events require risk managers to adopt a more sophisticated approach to risk management and an understanding of the range of risks that may impact their business operations.
Mali’s economy is remarkably robust, protected by its lack of sophistication and economic isolation relative to other West African nations. It registered a 2.12% contraction in GDP despite the inner turmoil. The country benefitted from an increase in the international price of gold and cotton in 2012, given that gold represents 80% of the country’s export earnings and a significant share of tax revenues, while cotton is the second largest export.
Direct and portfolio inflows into Mali are small and regional capital markets are the most underdeveloped in Africa. The West African Economic and Monetary Union has seen little progress towards regional integration, meaning the contagion effect from domestic violence on intra-regional trade is low.
Most of what Mali sells to its neighbours is through illicit trade on the black market, which affects the countries’ external positions. While Senegal conducts some trade with Mali, it often re-exports goods back to Mali, which has a greater negative effect on Mali than it does Senegal. On the macroeconomic front, Mali’s large current account deficit – which has been suffering due to the lack of new investment in the country – may affect the regional central bank as Mali may be forced to draw more foreign exchange reserves than it contributes. Even during the Ivorian electoral crisis, the macroeconomic situation in Côte d’Ivoire was not as bad as it appears to be in Mali. As Mali is one of the biggest economies in the Banque Centrale des États de l’Afrique de l’Ouest, if it began drawing more money than it contributes, it would have an effect on the amount member states have for import cover.
Following closely behind the civil war in Côte d’Ivoire that resulted in severe disruption to the global cocoa trade, the crisis in Mali and terror attack in Algeria are stark reminders of the risk of political violence and instability in doing business on the continent. Yet the opportunities on the resource-rich continent are immense and do not need to act as an investment constraint. Those organisations with more advanced risk assessment capabilities experience fewer cases of loss due to political violence or political instability.